How to protect my source code?

You can use VSS but that doesn't stop people from seeing the code on your machine as it keeps a local cache.
Who do you want to keep it from ?

Can I set a password so that nobody can read my code except the peoble who know the password?

We can do this for VBA code in Excel, why not in VB?

VSS just makes it readonly,

Can we delete the local cache and use the ones inside the database (if only one person developes the project)

You can set up permissions on if your running a NTFS partition. You can deny access to specific file types for example .BAS .VBP .FRM etc. or restrict running visual basic all together.

Control Panel / Administrative Tools / Local Security Settings / Software Restriction policy

Thank you. But that is no good to do that for all files in a specific file type.

1. Keep it on an unnetworked PC
or
2. Don't put it in a shared folder and make sure that you have adequate firewall, spyware and virus protection.

or you could work from a password-protected .ZIP file.
I personally would use the USB drive idea. If you have one that doesn't have password protecting software on it goto www.truecrypt.org